You don’t have to pay the full cost of your accommodation costs upfront. You have three options as to how you can pay:
Everyone who moves into an aged care home negotiates a room price before moving in. Whether you are then required to pay this price will depend on your means assessment.
Whether you’re eligible for government assistance or not, there are different options available for how to pay your accommodation costs in an aged care home.
It is recommended that you seek independent financial advice to decide which payment option works best for you.
What are my payment options?
I’ve chosen a lump sum – what does this mean for me?
I’ve chosen rental-style daily payments – how are my costs worked out?
Can I seek financial advice?
What are my payment options?
1. A lump sum
This is a refundable accommodation amount. There are two types of lump sum, depending on the outcome of your means assessment:
- Refundable accommodation contribution (RAC): This is when the government helps with the costs.
- Refundable accommodation deposit (RAD): This is when you pay the full amount yourself.
2. Rental-style daily payments
This is a daily accommodation charge. There are two types of rental-style daily payments, depending on the outcome of your means assessment:
- Daily accommodation contribution (DAC): This is when the government helps with the costs.
- Daily accommodation payment (DAP): This is when you pay the full amount yourself.
3. A combination of lump sum and rental-style payments
This is when you combine the two types of payments to meet your costs. You can split the combination any way you choose.
For example, for an agreed room price of $400,000, you could choose to pay $100,000 as a refundable lump sum, and also pay a reduced non-refundable daily payment.
If you choose to pay an amount as a lump sum, the balance is refunded when you leave the aged care home. Any amounts that you have drawn down from the lump sum to pay other aged care costs will not be refunded.
Do I need to decide how I’m paying before I move in?
No. You have 28 days from the day you move in to decide how you would like to structure your payments. Until you decide how to pay for your accommodation, you will need to pay by rental-style daily payments.
If you choose to pay by lump sum, your provider must give you at least six months from your date of entry to pay the lump sum.
Can my family give me money to pay for my accommodation?
The Aged Care Act 1997 does not prevent a family member from paying part or all of your accommodation costs. However, any lump sum payment made by the family will be counted as your asset for aged care purposes. This means it may affect your means-tested care fee or accommodation contribution.
It is recommended that you seek independent financial advice to understand if this option works best for you.
It is also recommended that you seek independent legal advice before you enter into a loan agreement. It is important to understand what this could mean for you and your family when you leave the aged care home.
I’ve chosen a lump sum – what does this mean for me?
Drawing down on lump sums to pay aged care fees
If you have decided to pay by lump sum for part or all of your accommodation, you may have the option to draw down on your lump sum to meet some of your other aged care costs. It is recommended that you seek independent financial advice to decide if this option will meet your financial needs.
- I have paid a part RAD
If you request it, your provider must allow you to draw down a daily accommodation payment (DAP) from your refundable accommodation deposit (RAD) balance to meet your accommodation costs.
- I have paid a part RAC
If you request it, your provider must allow you to draw down a daily accommodation contribution (DAC) from your refundable accommodation contribution (RAC) balance to meet your accommodation costs.
What happens if my lump sum is reduced due to drawing down?
If this happens, your provider can request that you maintain the agreed accommodation payment. If they do, you can choose to:
- pay additional or higher DAPs or DACs (due to your lump sum becoming smaller)
- top up your lump sum, or
- do a combination of both.
Can I use my lump sum to pay my other aged care fees?
Yes. Your provider may also agree to let you draw other aged care fees from your RAD or RAC balance, such as your basic daily fee or your means-tested care fee. It is your provider’s decision whether they choose to allow this.
Can paying a lump sum affect my other aged care fees?
Yes, it can. The balance of an accommodation lump sum is counted as an asset in the aged care means assessment. This means it is considered when working out your means-tested care fee and/or accommodation contribution.
However, an accommodation lump sum is exempt from the age pension means test.
It is recommended that you seek independent financial advice to understand if paying a lump sum works best for you.
If I pay by lump sum, what does it mean for my partner?
If you are a member of a couple, half the combined income and assets of both you and your partner are included in the means assessment. This happens regardless of who earns the income or whose name the asset is held in.
This means that if your partner is in aged care or planning to move into aged care, your paid lump sum may affect your partner’s means-tested care fee or accommodation costs.
It is important that you seek independent financial advice to understand if paying a lump sum works best for you and your partner.
What if I’ve paid a lump sum and want some of it back?
Your provider is not obliged to refund lump sums while you remain in care, although they may choose to do so.
This means that if you have a loan agreement with your family and they would like it repaid while you are in care, you will need to ask your provider if they will refund this amount to you.
I’ve chosen rental-style daily payments – how are my costs worked out?
Daily accommodation payment (DAP)
If you choose to pay for your accommodation by DAP, the amount is worked out by applying the maximum permissible interest rate (MPIR) to your agreed room price and dividing the amount by 365.
Example 1
If you agree to a room price of $500,000, your DAP will be worked out as follows:
DAP = (room price × MPIR) / 365
= ($500,000 × 4.89%) / 365
= $66.98
Example 2
For the same room price of $500,000, you could choose to pay a part RAD of $200,000 and a DAP based on the remaining $300,000. For this combination payment, your reduced DAP would be worked out as follows:
Reduced DAP = ((agreed room price − RAD paid) × MPIR) / 365
= (($500,000 − $200,000) × 4.89%) / 365
= ($300,000 × 4.89%) / 365
= $40.19
Note: The MPIR used here (4.89%) is current as at 20 March 2020.
The MPIR that applies when working out your DAP is fixed at the date you agree to a room price with your provider. Increases or decreases to the MPIR that occur after this time will not affect the rate that applies to you.
If you have paid a part RAD, you can tell your provider to draw your reduced DAP amount from your paid RAD. Over time, this will make your lump sum smaller and your daily payment larger.
Daily accommodation contribution (DAC)
If you are eligible for government assistance with your accommodation costs, Services Australia will write to your provider to advise them of the DAC you are eligible to pay. This amount applies only if you choose to pay for your accommodation entirely by daily payments.
If you wish to pay part of your accommodation contribution as a lump sum (RAC), your provider will need to calculate a reduced DAC amount for you.
For example, if Services Australia advises that you are eligible to pay a DAC of $16.00 per day, and you choose to pay a part RAC of $20,000, your provider will work out your reduced DAC using this formula:
Reduced DAC = DAC advised by Services Australia – ((Balance of RAC paid x MPIR) / 365)
= $16.00 – (($20,000 × 4.89%) / 365)
= $13.32
The MPIR used here is set on your date of entry to care. Increases or decreases to the MPIR that occur after you have entered care will not affect the rate that applies to you.
You can tell your provider to draw your reduced DAC amount from your paid RAC. Over time, this will make your lump sum smaller and your DAC payment larger.
What is the maximum permissible interest rate (MPIR)?
The MPIR is a government-set interest rate used to calculate a daily accommodation payment based on your agreed room price. It is used to determine equivalence between a daily payment and a refundable lump sum deposit, giving you a choice in how to pay.
The MPIR is not an interest charge to residents who have not paid for their accommodation costs in full. It is set at a level to ensure that if you choose to pay daily payments rather than a lump sum, the daily payments are sufficient to cover the costs of providing accommodation in your aged care home.
You can find current and previous MPIRs on the Department of Health website.
Can I seek financial advice?
Yes, you can. In fact, it is recommended. Some payment methods may affect your pension and aged care fees. Also, if both you and your partner need access to aged care, each of your payment methods may impact the other’s aged care fees. So, it’s beneficial to seek independent financial advice before deciding how to pay for your aged care.
Services Australia’s Financial Information Service (FIS) is a free service available to everyone. FIS officers can show you how to make informed financial decisions. They can also help you to understand the financial implications of your aged care costs.
To find out more about FIS, or to make an appointment, call 132 300 and say “Financial Information Service” when prompted.
For more information and guidance on financial matters, you can also visit our financial support and advice page.